Oh how boringly serious and grown-up we have become. In the good old days, the hours before a Budget were spent filling up the car with petrol and stocking up on fags and booze at the off-license.
As economist Doug McWilliams quipped today, now it’s all about the so-called “fiscal headroom” and of course whether the government will match or beat the forecasts from the all-powerful Office for Budget Responsibility by a decimal point or two.
Whether this means today’s Budgets are any more efficient or strategic is a moot point. Especially when most of the content is leaked ahead of time to the Chancellor’s favourite newspapers. Which means that there are no magic bunnies left to pull out of the magician’s hat to excite or disappoint, leaving only the Chancellor’s bad jokes to be picked up by the headline writers.
And it still means that the real picture of the economy only emerges days later when the tax nerds have gone through the Red Book with a fine tooth comb to catch the more complex details that have been missed on the day.
Yet these are serious times, and there’s an election on its way. So this was Jeremy Hunt’s last chance at the saloon to persuade cynical voters that giving the Conservatives another go at the forthcoming election is the best way for them to improve their standard of living.
What this Budget suggests is that the election is likely to be later this year rather than sooner, giving voters more time to see that inflation really has fallen and the cost of living squeeze is easing up.
Which is why it was always going to be a hard sell, as much a political one as economic. Britain was in technical recession for the last two quarters – and growth is still poor – so even the tiniest of differences in what the government is forecasting for this year’s growth – and the OBR is forecasting – are crucial.
So how did Hunt do? Well, in the event, not too badly. The OBR watchdog has revised upwards its growth projections for this year to 0.8 per cent and for next year, to 1.9 per cent.
More pertinently, the watchdog that did for Liz Truss’s misguided Autumn Statement predicts that inflation will be down below the two per cent target by the end of the year. This is an important prediction, as it confirms one of Rishi Sunak’s famous five pledges which was to halve the inflation rate which has now been achieved, down to four per cent from 11 per cent a year ago, and further to go. Hunt pushed out the boat claiming credit for this, saying that “this was no accident” as we all know it’s the fall in global energy and commodity prices – as well as interest rate hikes – that are responsible rather than the Treasury. But then this was a political Budget.
At the same time, the OBR reports that even with the second cut to National Insurance – down to 8 per cent – the tax burden will still reach the highest level since 1948 in 2028-29, at 37.1 per cent of GDP. This is largely down to tax thresholds staying frozen. Although the OBR forecasts that public expenditure as a proportion of GDP drops, It also painted a miserable picture of the economy, making the point that booming immigration was supposedly the only factor which has prevented growth from going into reverse. What’s more, per capita is set to be lower than previously predicted.
Against such a grim backcloth, Hunt probably went as far as he could by cutting NI rather than cutting income tax or indeed, raising tax thresholds which would have been sensible because of fiscal drag. Even so, the NI cuts will help 27 million workers – £900 a year for those employed and £650 a year for the self-employed. With other measures – such as those included in the Back to Work plan from last year’s Autumn Statement – there are now at least moves to get some of the 10 million people who are classed as “inactive” back to work.
One of the fairest measures was changing the childcare benefit thresholds. Those earning up to £80,000 will receive child benefit, rather than £60,000 currently which means that half a million families will get an average of £1,260 more this year, and 170,000 will get the full amount who previously did not. But it’s a pity that Hunt did not go the full gamut by ditching the system altogether by stripping payouts from households with one higher earner. That would have been a bold move.
Stealing Labour’s clothes by abolishing non-dom status – something he pointed out that former Chancellor Nigel Lawson had hoped to do – was rather smart, especially if the changes do result in more tax revenue than now. Hunt predicts the reforms – to be introduced in four years time- could yield £3.6 billion. It’s probably far too high a figure but at least more than at present- and wipes a smile off Labour’s frontbench which had hoped to present this as removing a tax dodge on the filthy rich.
Business had some reason to be cheered up too. Thousands of small businesses will be taken out of the VAT threshold after Hunt lifted it to £90,000. There were bold moves for the creative industries as well as the life sciences, helped by a massive thumbs-up from AstraZeneca which is investing even more at its Cambridge global headquarters as well as a new vaccine hub in Liverpool.
All good stuff. There were other more inspired moves on the business front aiming to boost investment in British companies as well as attracting overseas firms to invest here. The much-touted British ISA plan was more efficient than expected as the new £5,000 allowance for those investing in a British ISA comes on top of the existing allowances and should attract more retail investors. Having said that, abolishing stamp duty would have been far more effective while moves to persuade pension funds to invest more in the UK via the Edinburgh Reforms are a work in progress.
Perhaps the most enlightened – and vital – of all Hunt’s measures was his ambitious scheme to boost productivity with the Public Sector Productivity Plan, starting with investment in the NHS to modernise IT services, revolutionise waiting lists and other working practices by enhanced digitalisation.
As Doug McWilliams, co-chairman of the Growth Commission which recently published its alternative Budget, has been banging on about for years, the level of productivity in the public sector is scandalously low.
Only a few weeks ago, McWilliams claimed that more than six per cent of productivity has been lost since before the lockdown. If these levels can be recovered – and increased by more than one per cent a year – through reforms, the savings could be enormous while services would also improve without extra spending. (Indeed, it rather looks as though Hunt had a sneak read of the Commission’s numbers as they were remarkably similar.)
Yet if Hunt – and NHS boss Amanda Pritchard – are serious about putting these plans into practice, the potential for transforming how our health service works is enormous. Hunt may be over-egging the case but he claims that an extra £3.4 billion of spending on modernising IT systems etc within the NHS could bring about savings of £35 billion.
The reality is that reforming the NHS – a policy that even Labour now accepts has to happen – is the only way the healthcare service can survive as demand for its services is infinite. Hopefully, all those involved are serious about the ambition. But it’s probably too late to save the Tories.
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